Prepared by:-Chand MohdNITK Surathkal

Evolution of Porter's Five Forces Model:

Five forces is a framework for the industry analysis and business strategy development developed by Michael E. Porter of Harvard Business School in 1979. Michael Porter is a professor at Harvard Business School and is a leading authority on competitive strategy and international competitiveness.

Five forces uses concepts developing, Industrial Organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. Attractiveness in this context refers to the industry profitability.

Introduction:

The Porter’s five forces tool is a simple but powerful tool for understanding where power lies in a business situation.

This is useful because it helps understanding both the strength of the current competitive position and factors affecting the strategy development.

Industry Rivalry

Threat of New

Entrants

Bargaining Power of Buyers

Threat of Substitutes

Bargaining Power of Suppliers

Threat of new entrants:

The threat of new entrants is very high for the used car sales and service industry. There are many existing and new automobile service players are coming into the market.

Take an example of all company owned automobile players:- Maruti Service Centres, Hyundai Motor Service Centres, General Motors Service Centres, Tata Motors Service Centres, Ford India Service Stations.

Take an example of some new players:- Carzcare, Rescuefirst, Carnation.

Non-automobile players are also coming in the used car sales market like:- OLX, Quikr.

Continue… Some small players like the roadside workshops are

easy to establish anywhere at low cost with easily available labor, raw materials, resources which can lead to big players. For a new start-up no need to invest huge capital, with the amount of 7Lac-10Lac one can start his own service station.

Franchise of other players is easily available with less investment.

Result: Threat of new entrants is HIGH, hence Industry attractiveness is LOW.

Threat of substitutes:

Substitutes for this service already existed in the market from small players to big players. Most of the car service provider are giving the same services which one is providing to defend their market share in terms of volume or other.

From a customer perspective, the alternative option will be either to go for nearby service centre or to contact other options which are easily available for their location. The product used are appear different but can satisfy the same need as another product. In the car industry typically there are many cars they are similar just look at any mid-range Toyota and you can easily find a very similar Nissan, Honda or Mazda.

Continue… Other substitutes include own brand service centre. Mostly

people prefer their own brand service centre where they can use many services as providing by the company itself under warranty scheme or under extended warranty scheme.

Result: Threat of substitutes is HIGH, hence Industry attractiveness is LOW.

Bargaining power of suppliers: For the players like company owned the bargaining power

of suppliers is less as it can get constant supply of spare parts including OEM parts (Vehicle manufacturer’s brand) and OES parts (reputed brands of component manufacturer’s either domestic or international, supplying to vehicle manufactures or aftermarket).

For other players the bargaining power of suppliers is moderate. Many ancillary industries are opening up near automobile manufacturers or service providers realizing that there are lot of opportunities in automobile industry; hence there are lot of suppliers in this industry.

Every company has the partners in every field like petrol and diesel oils (HP, Mobil 1), Paints (AkzoNobel, Glasurit), Batteries (Exide), Car Insurance(Bajaj, ICICI, Bharti AVA, Tata AIG).

Continue… When there are many suppliers in an industry,

they do not have much power due to that industry manufactures can easily switch to another supplier if it is necessary.

Result: Bargaining power of suppliers is MEDIUM, hence Industry attractiveness is MODERATE.

Bargaining power of buyers:

The bargaining power of industry affects industry profitability by their ability to hold out for lower price, higher quality and better price. In automobile and car service industry the bargaining power of the buyers is moderately high.

There are various brands and service centres are available to choose from nowadays and the buyers have low switching cost due to the various brands with similar specs and price with competitive marketing.

Continue… The other centres are offering and providing many

attractive membership schemes like Extended Warranty Program for cars out of Manufacture warranty, Privilege Card Program and also providing offers/packages for specific model of car. Hence the bargaining power of buyers is high.

Result: Bargaining power of buyers is HIGH, hence Industry attractiveness is LOW.

Industry rivalry:

Automobile industry in India is growing very rapidly with all major players having their service stations and sales in India. This is a major threat to existing Indian automobile players.

The industry rivalry is very intense from competitors which are company owned like Maruti, Hyundai, Tata Motors, Mahindra, TVS having a good dominance in their service ability.

Result: Threat from rivals is HIGH, hence Industry attractiveness is LOW.